Interested in keeping Air India in Indian hands, says Suresh Prabhu

Days after Rashtriya Swayamsevak Sangh, or RSS, chief Mohan Bhagwat's remark that national carrier Air India should remain with an Indian after disinvestment, the government is already making conciliatory sounds. In an exclusive conversation with Business Today, Civil Aviation minister Suresh Prabhu said, "Air India disinvestment has not been handled at the ministry so far. We will definitely be interested in making sure that Air India remains in Indian hands only. Not more than 49 per cent will go to foreigners."

Informed sources also told Business Today that top RSS functionaries have also briefed other ministers and Prabhu's deputy about exactly what the ideological parent wants. The employee unions - including RSS affiliate Bharatiya Mazdoor Sangh, or BMS - opposed the disinvestment but neither RSS nor its economic think tank Swadeshi Jagran Manch, or SJM, dissented. SJM only opposed the 'strategic sale' mode -- it prefers equity sales through the stock market.

If the government pushes to ensure Indian ownership, it will be difficult to ensure the disinvestment of the ailing carrier. The government has bundled a 76 per cent stake in Air India (international operations) and Air India Express (low cost carrier) with 50 per cent of its stake in Air India Sats Airport Services (AISATS). There is hardly any Indian company interested in taking this deal. Foreign players such as International Airlines Group or IAG (owners of British Airways), Singapore Airlines, Lufthansa, Etihad, along with a few funds including IFC, Warburg Pincus and GIC,  had shown interest. They would  require local partners to clinch the deal. Some foreign players are already backing out. The IAG denied any interest, calling it a risk at this stage.

Domestic players are wary too. The country's largest airline Indigo recently pulled out as it was not keen to take over the domestic operations of Air India. Indigo, already has a 40 per cent share in the domestic market. Acquiring Air India would give it an additional 14 per cent share but the deal could come under the lens of the Competition Commission of India or CCI. "Quite simply, we are interested in the airline operations of Air India. And more specifically, we are focused narrowly on Air India's international operations and Air India Express," IndiGo founder Rahul Bhatia had said earlier.

The compulsion of taking over 50 per cent of AISATS  is keeping Jet Airways away. Meanwhile, players like Spicejet or GoAir might not have the balancesheet to support the purchase. The Tata Group, which has interests in Vistara and Air Asia's India operations, opted out because of three conditions --merger with existing airline, job security of existing staff and ownership of debt. In a recent report, SBI Caps valued Air India at $2.5 billion.

The government has stipulated that bidders must have a minimum net worth of Rs 5,000 crore and should have positive profit after tax in at least three of the immediately preceding five financial years. Along with these, there are two other key riders : the successful bidder would be required to stay invested in the airline for at least three years and there will be a government nominee on the board.

Technically, most Indian airlines will be eligible but arranging funds - not only to buy the airline but to run it as well - will be a big challenge. The airlines with stronger balance-sheets like Indigo, or those with strong sponsor support like Vistara, appear better placed to take over Air India. "Technically, any corporation with financial abilities can participate in the deal but globally airline business runs on very thin margins and requires immense expertise," says Dhiraj Mathur of PwC India chapter. The last day for expression of interest, or EoI, is May 14.

The RSS chief's comments may make it harder to push through the disinvestment of Air India. It may now only happen after 2o19 general elections, suggests BJP MP Subramaniam Swamy.